Depreciation Recapture

[taxcurious]

What is the name of your state? CO

What exactly is the rule for depreciation recapture in the following scenario:

taxpayer lived in the home 2 of the last 5 years
taxpayer then rented the home and claimed depreciation as a deduction
taxpayer sold the house within the 5 years

Is the depreciation a reduction of basis or is it recaptured at the 25% rate?

 

[tranquility]

You reduce the amount excluded from your gain per section 121 and then complete schedule D using an Unrecaptured Section 1250 Gain worksheet and the schedule D tax worksheet and tax table for the tax calculation.

Example of the first part for a single person:
Basis: 100,000
Amount realized: 350,000
Depreciation allowed after May 6, 1997: 50,000

Section 121 exclusion is 200,000 and the unrecaptured gain of 50,000flows through everything else. (But will probably be taxed at your marginal rate.)